Preparation of Profit as well as Loss Account

Preparation Of Profit As Well As Loss Account

Explanation of Certain items of Profit as well as Loss Account

Preparation Of Profit As Well As Loss Account

1. Salaries

Preparation Of Profit As Well As Loss Account

Salaries are paid for the services of employees as well as are debited to profit as well as loss ac- count being indirect expense. If any salary has been paid to proprietor or partners, which should be shown separately because which requires special treatment at the time of income tax assessment.

Preparation Of Profit As Well As Loss Account

2. Salaries as well as Wages

Preparation Of Profit As Well As Loss Account

When wages account can be included with salaries which treated can be as indirect expense as well as can be taken into profit as well as loss account.

Rent of the office shop showroom or godown can be an indirect expense as well as so can be debited to profit & loss account. However, rent of factory can be debited to trading account. When a part of the building has been sublet the rent received should be shown on the credit side of profit as well as loss account as a separate item.

4. Rates as well as Taxes

These are levied by the local authorities to meet public expenditure. which being an indirect expenditure can be shown on the debit side of profit as well as loss account.

5. Interest

Interest on loan, overdraft or overdue debts can be payable by the firm. which can be an indirect expense; so debited to profit as well as loss account. Interest on loan advanced by the firm on depositor investments can be an income of the firm as well as so can be credited to the profit as well as loss account.

If business has paid any interest on capital to its proprietor or partners which should also be debited within the profit as well as loss account however separately because which item needs special treatment at the time of income-tax assessment.

6. Commission

In business sometimes agents are appointed to effect sales, who are paid commission as their remuneration. So which being a selling expenses can be shown on the debit side of profit as well as loss account. Sometimes commission can be also paid on purchases of goods, such ‘as expense should be debited within the trading account. Sometimes the firm can also act as an agent to the various other business houses as well as in such cases which receives commission through them. Commission so received can be shown on the credit side of profit as well as loss account.

7. Trade Expenses

They are also termed as ‘sundry expenses’. Trade expenses represent expenses of such a nature for which which can be not worthwhile to open separate accounts. Trade expenses are not taken to trading account.

8. Repairs

Repairs to the plant, machinery, building are indirect expenses are treated expense as well as are debited to profit as well as loss account..

9. Traveling Expenses

Unless mentioned otherwise, traveling expenses are treated as indirect expenses as well as are debited to profit as well as loss account.

10. Horse & stable Expenses

Expenses incurred for the fodder of horses as well as wages paid for looking after stable are treated as indirect expenses as well as debited to profit as well as loss account.

11. Apprentice Premium

which can be the amount charged through persons to whom training can be imparted by the business. which can be an income as well as can be credited to profit as well as loss account. In case apprentice premium can be charged in advance For two main or three years, then the amount can be distributed over number of years as well as each year’s profit as well as loss account can be credited with its share of income.

12. Bad debts

which can be the amount which could not be recovered by the trader on account of credit sales. which can be a business loss, so can be debited within the profit as well as loss account.

13. Life Insurance Premium

If the premium can be paid on the life policy of the proprietor of the business; which can be treated as his drawings as well as can be shown by way of deduction through the capital account. which should not be taken to profit as well as loss account.

14. Insurance Premium

If insurance premium account appears within the trial balance, which stands for the insurance of the business. which can be taken to profit as well as loss account. Insurance premium on goods purchased, factory building, factory machines are treated as direct expense as well as are taken to trading account.

15. Income Tax

within the case of merchant income-tax paid can be treated as a personal expense as well as can be shown by way of deduction through capital account. Income-tax in case of companies can be treated differently.

16. Discount allowed as well as Received

Discount can be a reward for prompt payment. which can be belief to show discount received as well as discount allowed separately on the credit as well as debit side of profit as well as loss account respectively instead of showing the net balance of which account.

17. Depreciation

Depreciation can be a loss incurred on account of use of fixed assets within the business. Generally, which can be charged through profit as well as loss account at a fixed percentage. The students should exercise great care as regards the rate of depreciation. If rate can be without words ‘per annum’, then the rate will be taken irrespective of the period of accounts. which can be very important when the period of accounts can be less than one year. On the various other hand, if the rate of depreciation can be ‘per annum’ the depreciation should be calculated on the assets with due consideration to the period for which the asset has been used in business during the year. In case of additions to assets during the year, which can be advisable to ignore depreciation on additions if the date of additions can be not given. Same rule shall hold not bad for the sale of assets during the year.

18. Stock at the end appearing within the trial balance.

which can be important to emphasize the rule which balance appearing within the trial balance can be taken to one as well as only one place. which may either be trading account or profit as well as loss account or balance sheet. Since stock at the end can be an asset, which will betaken to balance sheet. On the various other hand, so long as there can be stock in trade, account for which must be kept open therefore be taken to the assets side of balance sheet.